Rating agency ICRA maintains its Stable outlook on the Indian hospital industry, supported by expectations of healthy revenue growth and strong margins for ICRA's sample set, led by the rising incidence of non-communicable lifestyle diseases, growing per capita spend on healthcare and awareness levels, increasing penetration of health insurance and higher medical tourism volumes.
ICRA expects the aggregate occupancy for its hospital industry's sample set to remain strong at 63-65% in FY2024 (65.1% in FY2023), backed by sustained healthy demand for healthcare services and continued market share gains for organised players. The average revenue per occupied bed (ARPOB) is expected to witness moderate growth of 5-7% in FY2024 (after witnessing an expansion of 10% in FY2023), given the high base of the previous year. Improving the specialty mix, better payor mix (with a focus on cash and insurance patients), and annual price revisions by companies to offset cost inflation will support the ARPOB growth for the sample set. Overall, ICRA estimates revenue growth in FY2024 at 8-10%. Improving operating leverage coupled with continued cost optimisation and digitisation measures are expected to support a healthy OPM of ~22-23% in FY2024.
Commenting on the expansion in the hospital industry, Ms. Mythri Macherla, Assistant Vice President & Sector Head, ICRA said: "Supported by sustained improvement in demand, ICRA's sample set companies have announced sizeable expansion plans with the addition of over 8,400 beds and an upgradation/refurbishment plan over the next four years. This translates to over 26% increase in capacity vis-à-vis March 2023 levels. Further, some large companies in the industry continue to scout for inorganic growth opportunities, which could translate into incremental beds being added through mergers and acquisitions. With robust accruals, the debt metrics are expected to remain strong going forward, despite incremental debt funding for expansion."
Private equity investments have also witnessed a healthy ramp-up in the Indian hospital industry, with deals worth over Rs. 27,000 crore in the last two years.
The in-patient footfalls for ICRA's sample set improved sequentially during every quarter of FY2023 (except Q3 FY2023, due to the deferral of elective surgeries by patients during the festive season), mainly aided by the strong revival in medical tourism, coupled with changing patient preferences towards large hospitals on the back of increasing insurance coverage. The average length of stay (ALOS) in FY2023 stood at 3.6 days and is expected to remain low, backed by faster throughput of patients, which is also supported by technological advancements.
While turnaround in operations of many of the new centres for some hospital companies improved the sample set return on capital employed (ROCE) to 18% in FY2022 (from 6% in FY2021), relatively higher capital expenditure moderated the same to 16% in FY2023. Going forward, the ROCE is expected to remain between 13-15% for the sample set, supported by incremental absolute OPBDITA, despite additional capital being deployed towards setting up new capacities. |
